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Making the case for infrastructure spending

At a time when high levels of unemployment have become a fixture of the U.S. economy, job creation has emerged as a major argument in the case for increased spending on infrastructure. A recent report highlights potential economic benefits associated with increased spending on water infrastructure, while another study details the possible negative economic consequences if such spending does not materialize. Meanwhile, infrastructure advocates are working to persuade the U.S. Congress to make reforms that would facilitate greater infrastructure investment with minimal cost to the federal government. Read more

Infrastructure spending as stimulus

A recently published report attempts to estimate the potential economic benefits that might accrue from major increases in spending on wastewater and stormwater infrastructure. The report, Water Works: Rebuilding Infrastructure, Creating Jobs, Greening the Environment, was released in October 2011 by Green for All (Oakland, Calif.), a nonprofit organization that aims to reduce poverty by helping to develop a strong “green” economy. As the basis for its report, Green for All focuses on the nation’s estimated $188.4 billion in capital needs associated with wastewater and stormwater infrastructure during the next 20 years, a figure that the U.S. Environmental Protection Agency (EPA) identified in its 2008 Clean Water Needs Survey.

If spread equally over 5 years, the $188.4 billion in spending would generate an estimated $265.6 billion in economic activity and create nearly 1.9 million jobs, according to the report. Employment resulting from the spending would take the form of “direct jobs” in the construction and utility sectors, “indirect jobs” in manufacturing and other sectors that supply the direct industries with equipment and machinery, and “induced jobs” generated by income spent by newly hired workers and their employers, according to the report. Rather than waiting for the economy to improve before increasing infrastructure spending, Green for All maintains that spending now will confer greater economic benefits. In its report, the group cites three reasons to support this view:

the current high levels of unemployment require immediate action;

the cost of borrowing money has dropped to historic lows; and

infrastructure projects are likely to cost less during the ongoing economic downturn than after the economy has recovered.

Although Green for All would like to see increased infrastructure spending at all levels of government, current economic conditions obviously pose a challenge, said Emily Gordon, a senior associate with the group. However, some local governments, in particular, are employing “creative financing” to generate additional infrastructure funding while motivating customers to help address water quality problems, she said.

As an example, Gordon pointed to the City of Philadelphia, which recently changed the structure of its stormwater fee from a meter-based to a parcel-based system. As a result, the fee is now based on the amount of impervious surface present on a property, rather than the volume of water used by a customer. This switch aims to “incentivize people” to make changes that will reduce impervious areas, leading to water quality improvements, Gordon said.

Taken together, the requirement to upgrade infrastructure across the country and the dire need to create jobs present an opportunity to address both problems at once, Gordon said. With this goal in mind, Green for All is “hopeful that we’ll see an increased focus on this issue and increased investment at all levels of infrastructure,” she said.

The downside of not spending

The economic consequences for the United States of not investing in water and wastewater infrastructure are the focus of a report released in December 2011 by the American Society of Civil Engineers (ASCE; Reston, Va.). Failure To Act: The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure was prepared for ASCE by Economic Development Research Group Inc. (Boston) and Downstream Strategies (Morgantown, W.Va.).

The report takes as its starting point a previous estimate by EPA that the water and wastewater sectors combined had a capital funding gap of nearly $55 billion in 2010. If current trends persist, this gap will increase to $84 billion by 2020 and $144 billion by 2040, according to the report. Unless this funding gap is addressed, the United States can expect to experience increased costs and significant declines in economic output. Between now and 2020, the estimated cost for U.S. households and businesses resulting from unreliable water and wastewater infrastructure could total as much as $206 billion, according to the report. During this period, business sales are expected to experience a cumulative loss of $734 billion as a result of declining infrastructure performance.

Job losses also are anticipated. Faced with growing uncertainty regarding the performance of water and wastewater infrastructure, certain individuals and businesses may be inclined in the future to pay more to ensure adequate service and reliability, said Steven Landau, vice president at Economic Development Research Group. Such costs could take the form of installing technology to treat or reuse water at the point of use, drilling wells to supply one’s own water, moving to a region with more-abundant water supplies, and paying increased medical expenses associated with increases in waterborne illnesses. By reducing the amount of discretionary spending available to businesses, such costs could have “serious consequences” in terms of the ability of business to maintain existing workers or hire new employees, Landau said.

In what it describes as a “worst case scenario,” the report warns that the United States will lose nearly 700,000 jobs by 2020. Unless steps are taken to address the funding gap, this figure could double to 1.4 million lost jobs by 2040, according to the report.

ASCE prepared the report to assist local decision-makers as they decide how best to spend their limited funding, said Gregory DiLoreto, ASCE’s president-elect and chief executive officer of the Tualatin Valley Water District (Beaverton, Ore.). “What we’re trying to do is give elected officials information” they need to make informed choices about infrastructure investments, he said.

Tweaking the tax code

Current fiscal constraints at all levels of government mean the infrastructure funding gap will not be overcome easily. In a bid to facilitate greater funding opportunities, the Water Environment Federation (WEF; Alexandria, Va.) and other like-minded organizations are working with the U.S. Congress on efforts to lower the cost of borrowing for water and wastewater agencies, said Tim Williams, WEF’s managing director of leadership and public policy. One such effort involves exempting water and wastewater infrastructure projects from the existing volume cap on private activity bonds (PABs).

Because PABs are issued by local or state governments to finance projects that serve purposes both public and private, their use helps attract capital from private entities looking to collaborate on major infrastructure projects.

Although PABs are exempt from federal taxation, federal law limits the annual volume of these bonds that a state may issue on a tax-exempt basis, restricting the extent to which PABs are used to finance water and wastewater infrastructure. Exempting water and wastewater infrastructure from the volume cap would help attract more private capital for such projects and reduce financing costs, Williams noted.

Legislation to effect this change has been introduced in both the U.S. House of Representatives (H.R. 1802) and the U.S. Senate (S. 939). Known as the Sustainable Water Infrastructure Act, the measure has attracted a fair degree of support among lawmakers in both chambers. Although similar legislation has been debated in previous Congresses, the outlook for passage this year is “pretty good,” said Tom Curtis, deputy executive director of the American Water Works Association (Denver).

Innovations in finance

Another effort to generate more capital at lower cost has culminated in recent calls for Congress to create a Water Infrastructure Finance and Innovation Authority (WIFIA), a proposed federal mechanism through which water and wastewater agencies could gain access to capital at the low interest rates currently enjoyed by the U.S. Department of the Treasury. Similar to an existing program used to finance transportation projects, WIFIA would provide loans, loan guarantees, and other credit support for water and wastewater projects.

Large projects, which often face difficulty securing loans from a State Revolving Fund (SRF), particularly could benefit from the program. Meanwhile, WIFIA also could loan funds directly to SRFs, enabling them to leverage their capitalization grants at the lowest possible interest rates. Because loans from WIFIA would be repaid with interest, “the cost to the federal government would be essentially zero,” Curtis said.

Meanwhile, under existing budgetary rules for programs similar to WIFIA, only a small fraction of the loans made by the authority would count against the federal government’s budget, said Aurel Arendt, general manager of the Lehigh County (Pa.) Authority. As a result, “you essentially get a much more magnified benefit from the program at the utility level than what the actual budgetary cost is,” Arendt said.

On Feb. 28, WEF Executive Director Jeff Eger joined other water sector leaders on Capitol Hill to testify in favor of the WIFIA proposal. The hearing in front of the House Committee on Transportation and Infrastructure’s Subcommittee on Water Resources and Environment highlighted the financial challenges facing water facilities and the importance of providing support.

“Innovative financing legislation provides an opportunity to demonstrate once again that clean water is a national priority, and that leaders here in Washington are sympathetic to the needs of local governments,” Eger said. “Introduction and eventual passage of new water infrastructure financing legislation is an important step in recognizing the value of water and the need to support our essential water infrastructure.”

Varying drivers push communities to pursue one treatment option or the other

Municipalities often are faced with making important decisions about providing long-range wastewater treatment for their customer base. Wastewater planning often is based on a range of regulatory, regional, and site-specific factors, which, taken together, will help determine the most appropriate strategy to pursue. While tighter water quality regulations are pushing some municipalities toward project options that consolidate wastewater treatment operations, decentralized approaches also are being used to meet the needs of expanding communities, especially in circumstances where making the substantial capital investment typically required for centralized treatment is not feasible.

Following a successful consolidation model

In East Texas, the Angelina and Neches River Authority (ANRA; Lufkin) is considering a consolidation treatment project that would involve purchasing the nearby City of Huntington wastewater treatment plant and consolidating treatment with another, private treatment facility. If approved, the project would provide a solution to stringent water quality discharge regulations and follow the same methodology employed by ANRA in a previous effort that effectively consolidated three treatment plants into one facility, according to Kelley Holcomb, ANRA general manager.

That project, completed in 2003, involved combining the effluent discharges from two older facilities (built in 1950 and 1980, respectively) with that of a newer treatment plant built in 1998. The newer facility was upgraded, resulting in a significantly higher water quality discharge, and the two older facilities were subsequently taken off-line.

By consolidating treatment through the upgraded facility, now permitted to treat and discharge 1400 m3/d (370,000 gal/d), ANRA was able to realize “reduced operation and maintenance costs and significantly higher water quality discharge, including a 98% reduction in effluent constituents,” Holcomb said. “The 1998-built facility was also strategically located in terms of projected growth and had capacity for growing the footprint of the plant.”

Similarly, the current proposed project would involve capital improvements to the Huntington treatment facility, boosting its treatment efficiency and enabling it to accept additional influent. “This would allow us to shut down, demolish, and remediate the private facility and extend public wastewater services to previously unserved cluster populations,” Holcomb said.

Under ANRA’s current consolidation model, the additional 190 m3/d (50,000 gal/d) of capacity from the private treatment facility can be combined into the 1895-m3/d (500,000-gal/d) Huntington plant without having to increase staffing or place a greater burden on the facility’s operations and maintenance, Holcomb said. “There is not a proportional increase in costs to an increase in wastewater treated,” he said. “However, if that same 50,000 gal/d [190 m3/d] of wastewater is treated at a stand-alone facility, then the costs associated with lab testing, reporting, and repair and maintenance would still need to be dealt with on a separate basis.”

According to Holcomb, tougher water quality regulations for permitted discharges are the key driver for consolidation in the region, with impetus provided by the state legislature. “Texas Water Code, Chapter 30, creates an easier pathway for government entities to contract with each other by cutting through statutory red tape for projects relating specifically to regional sewer[s],” Holcomb said.

Consolidation provides a viable alternative, especially for facilities serving smaller-scale communities in the area, Holcomb added. “Many of the cluster communities that have sprung up over the years as the East Texas region developed are served by smaller treatment facilities, many of which do not have the resources to deal with stricter water quality regulations,” Holcomb said. “These facilities, including smaller municipalities, are finding greater difficulty in maintaining compliance on an ongoing basis. As such, they are highly motivated to explore financially feasible options that will effectively relieve them from the burden of surface water discharge permits.”

Consolidated treatment for meeting nutrient reduction requirements

New Kent County, Va., facing stringent water quality discharge requirements for its two wastewater treatment plants as part of the Chesapeake Bay initiative for reducing nutrients entering the bay, recently completed a successful consolidation project for meeting effluent standards. The approach included adding technological upgrades to the Parham Landing Wastewater Treatment Plant, enabling the county to close treatment operations at the Chickahominy Sewage Treatment Plant.

“The costs associated with upgrading both wastewater treatment plants to meet nutrient limits would have been astronomical,” said Lawrence Dame, the county public utilities director. “Consolidating down to one plant allowed us to focus on one discharge.”

Deciding which plant to upgrade was largely based on the nutrient criteria of the receiving waters. “We chose to expand the Parham plant because the nutrient regulations associated with its source discharge — the York River — were the least stringent,” Dame said.

Another factor driving the decision was the fact that the Chickahominy plant was under a consent order, said Harold Jones, operations superintendent at New Kent County Public Utilities. “It would have been very difficult for the Chickahominy plant to meet the new phosphorus limits of the James River Basin,” he said. “The new standards are right to the limit of technology, and upgrading to meet those limits would have been very expensive.”

The improvements at the Parham facility included automation upgrades, which allowed the county to streamline its staffing requirements, according to Dame. “The facility also switched to a sequential batch reactor process, resulting in greater treatment efficiencies and significantly higher water quality discharge,” he added.

Additionally, a portion of the treated effluent is now sent back to the Chickahominy facility, which is used to store reclaimed water for reuse on two golf courses and a horse-racing track.

A decentralized solution in Alabama

In Mobile, Ala., the Mobile Area Water and Sewer System (MAWSS) decided to use a decentralized treatment approach to provide wastewater services to a new subdivision and school being built west of the city, outside the existing centralized service area.

Decentralized treatment, in this circumstance, was considerably more cost-effective than extending the centralized system to the far outskirts of western Mobile, an effort that would have required significant capital investment costs, according to Malcolm Steeves, MAWSS executive director. “The new subdivisions being built were remote and included a relatively smaller number of customers,” he said. “By providing decentralized treatment, new customers could more easily be folded into the new treatment system as the area developed.”

Permitting was another driving factor. “Regulatorywise, obtaining a permit for a new surface water discharge would have been a very difficult road,” Steeves said. “However, permitting for a decentralized treatment system with groundwater discharge was a much easier process.”

According to the Water Environment Research Foundation (WERF; Alexandria, Va.), which examined Mobile’s choice, a decentralized approach would have far lower operation and maintenance costs in the exurbs of western Mobile. Providing a utility-managed wastewater service to the expanding areas also would enable MAWSS to be more competitive with other water utilities and gain business in newly developing areas, according to a WERF study. WERF examined the MAWSS decision as part of a larger research project titled, “When To Consider Distributed Systems in an Urban and Suburban Context.”

“The WERF project developed several guidance papers, 20 case studies, and an Excel-based decision-support model to help stakeholders assess the ability of centralized or decentralized systems to meet community-specific sustainability objectives,” said Jeff Moeller, senior program director at WERF. “Decentralizedsystems can be built when needed to meet demand, also known as ‘pay-as-you-grow,’ which also allows them to take advantage of the latest technology advancements,” he said. “Although decentralized treatment may not always be the best solution, the research suggests that it would be wise to give decentralized approaches equitable consideration to other approaches when evaluating wastewater options for a community, which is not something that has typically happened in the past.”